Quick Bite: Aussie Consumers & Businesses “Marking Time”
Author: Paul Zwi
Recent economic data in Australia have been lacklustre, and the start of electioneering in the build-up to a (likely May) Federal Election is not going to be helpful. The latest reads show a ‘cautiously pessimistic’ consumer mood. Much of that caution still centres around stretched household finances, which look to have come under renewed pressure since the start of the year.
The Westpac-Melbourne Institute Consumer Sentiment Index was essentially unchanged in February, edging up 0.1% to 92.2 from the 92.1 recorded in January. While the overall mood improved over the second half of 2024, recovery has stalled in the last three months owing to continued pressures on family finances and a more unsettled global backdrop. The ‘family finances vs a year ago’ sub-index slipped 3.4% lower in February but is still up 19% from the low in May last year.
Some of this may be a bigger than normal ‘hangover’ from the Christmas-New Year period. It may also be a sign that the boost from tax cuts and fiscal support measures is starting to wane. The pullback has been most pronounced for low–income earners, females and those aged 18–24. However, expectations for the year ahead climbed higher and are sitting at around three-year highs led by optimism amongst mortgage holders who are anticipating rate cuts (likely on 18 Feb).
The ‘time to buy a dwelling’ index declined 2.3% in February to 87.8. Homebuyer sentiment has recovered strongly over the last six months, the index surging 23% with a clear boost from the shifting interest rate outlook. However, buyer sentiment remains pessimistic overall, reflecting the affordability challenge of high prices.
Source: Westpac Economics
Also, out last week, was the NAB business survey which showed that business conditions index fell 3 index points in January to +3, in line with the result from November which itself represented the weakest read since the ‘omicron’ scare in January 2022 and below the historical average of +7. Looking at the constituent sub-indexes, the monthly move was once again driven by trading conditions and profitability, both of which have now reached their weakest levels since 2020.
The survey was largely uneventful, seeing little change. Conditions have been easing gradually but consistently since 2022, at the onset of the post-pandemic inflation shock and the subsequent tightening cycle delivered by the Reserve Bank of Australia (RBA). Over this period, confidence has been volatile but has generally centred around a ‘neutral’ level of zero, pointing to lasting uncertainty over the economic outlook.
Source: Westpac Economics
Meanwhile, the employment sub-index managed to post another monthly gain and hold near its current subdued average, suggesting that factors relating to the demand environment are the most likely candidate behind the continued slowdown in business conditions over recent months.
Looking through the monthly volatility, the business confidence index continues to track broadly around a neutral level of zero. There remains a risk that we continue to see volatility in this measure given the tumultuous global economic environment since President Trump took office. Despite tariff and trade scares, Australia is relatively well-positioned to manage the risks.
Domestic developments – particularly as they relate to the RBA’s policy easing cycle and the upcoming Federal Election – will likely be more important drivers of local business sentiment over the near term.
Other bits of detail from the business survey were also little changed. Consistent with the slowdown in business conditions, forward orders continue to post month-over-month declines. Measures of costs and prices are likely to provide the RBA Board with enough confidence to deliver its first rate cut of the cycle on 18 February.
